House Democrats back legislation to automatically enroll employees in retirement plans

Employers that don’t already offer retirement plans to their workers would be required to do so under a recently proposed federal law.

Rep. Richard Neal, a Democrat from Massachusetts, reintroduced a bill on Feb. 7 that would require employers with more than 10 workers to automatically enroll their employees in an individual retirement account (IRA) or another similar savings plan, such as a 401(k).

Neal, who first introduced this legislation in 2017, said in a statement that “automatic IRAs are simple, effective, and proven tools to help more workers save for secure retirements.” The bill would build on automatic IRA enrollment policies already in effect at the state level, which Neal said have been effective not only “in increasing savings rates,” but also in helping “close racial, gender, and income savings gaps.”

The legislation promises to “dramatically expand retirement coverage for millions of workers.” Nearly one-half of US workers do not have access to a retirement savings plan through their employer, according to an estimate by The Century Foundation.

What this would mean for HR. Employers that already sponsor a retirement plan would not be required to make a change under this legislation, according to a fact sheet from Democrats on the House Ways and Means Committee, which Neal chairs. Businesses that have been around for less than two years would also be off the hook.

Under the proposal, employees would contribute a minimum of 6% of their salary to their automatic IRA account, which could be either a traditional or Roth IRA. Contributions would increase by 1% each year, topping out at 10%. Workers would be allowed to opt out of the account as well.

Employers with up to 100 employees would receive a $500 annual tax credit for three years for setting up the automatic IRAs. Some 15 states already require certain employers to automatically enroll workers in IRAs, according to tracking by Georgetown University’s McCourt School of Public Policy, and such programs would satisfy requirements of this bill being proposed at the federal level.

This isn’t the only legislation in Washington that has been proposed to expand access to retirement savings accounts. A separate bipartisan bill introduced in the Senate last year would establish a federal savings plan targeted toward low- and middle-income workers that aren’t already enrolled in a retirement plan. This bill faced opposition from industry groups, according to Investment News, due to fears it would threaten private-sector retirement plan providers.